July 07, 2016

Recent arrests have once again left the pharmaceutical world wondering how many times do the same lessons have to be learned? With the arrests of ex- Insys employees, the old days of sham educational events and lunches have once again resurfaced. This article outlines the arrests, how they are similar to previous arrests, and what can (and should) be done to stop activities like this from happening.

According to George Santayana, "those who fail to learn from history are doomed to repeat it". For the pharmaceutical industry, this appears to be true. Recently, the Department of Justice and the Federal Bureau of Investigation announced the arrest of two former employees of Insys Therapeutics for allegedly violating the Anti- Kickback Statute (AKS), as part of a scheme to pay doctors thousands of dollars to participate in sham educational programs. The purpose of the payments allegedly was to induce those physicians to prescribe millions of dollars' worth of fentanyl spray.

The fentanyl spray at issue was approved by the United States Food and Drug Administration ("FDA") around January 2012, solely for the management of breakthrough pain in cancer patients who are already receiving, and are tolerant, to opioid therapy for their underlying persistent pain.The spray created approximately $330 million of revenue for Insys in 2015 alone.

June 20, 2016

In a blow to the Department of Justice and the Yates Memo, a Massachusetts jury acquitted Warner Chilcott executive Carl Reichel. Reichel was facing charges that he violated the Anti-Kickback statute by communicating to sales representatives that they could (and should) use "sham" promotional education dinners to build relationships with physicians and force those physicians to make commitments to purchase Warner Chilcott products.

Prosecutors also alleged that Reichel instructed Warner Chilcott sales staff to bring food and drink to reward staff at physicians' offices for submitting requests to insurance companies to pay for prescriptions of Warner Chilcott drugs. The alleged wrongdoing occurred between 2009 and 2011.

Reichel pleaded not guilty, and in court documents, his attorneys noted that they felt there was no evidence that Reichel had intended to violate the anti-kickback law, nor did he have any knowledge of doing anything illegal.

Warner Chilcott

In October 2015, Warner Chilcott agreed to plead guilty to a criminal charge of health care fraud, arising out of similar allegations, and to pay $125 million to resolve a Department of Justice investigation into its payments to physicians and other parties.

Yates Memo

In September 2015, Deputy Attorney General Sally Quillian Yates issued a memo that has became known as the "Yates memo" that laid out the various steps Justice Department attorneys should take in their investigations to focus more on individuals. The DOJ is hopeful that a focus on individuals will do a better job at deterring future illegal activity and ensure that "the proper parties are held responsible for their actions."

A defendant cannot be convicted of the Anti-Kickback statute merely because he sought to cultivate a business relationship or create a reservoir of goodwill that might ultimately affect one or more unspecified purchase or order decisions. If the remuneration is only for a purpose other than seeking to effect a quid pro quo transaction of payments of remuneration for order or purchase of drugs, it is not within the scope of the Anti-Kickback Statute.

Prior cases have been difficult because it is tough for prosecutors to successfully prove that an individual had criminal intent in a corporate setting where decision-making tends to be spread among many.

Another criminal trial with a similar fact pattern recently began in Boston, focused on alleged wrongdoing by the former CEO of Johnson & Johnson's Acclarent unit, William Facteau and the former vice president of sales, Patrick Fabian. Both were indicted in April 2015 on charges including conspiring to market a medical device for a use not approved by the FDA and conspiring to commit securities fraud by not disclosing the conduct to Johnson & Johnson when it acquired Acclarent in 2010. Both parties have pled not guilty.

April 26, 2016

Readers who attended CBI's Annual Pharmaceutical Compliance Congress last year may have seen Securities and Exchange Commission (SEC) Enforcement Director Andrew Ceresney's speech about various focuses for the SEC. One of the focuses he mentioned was disclosures that concerned Food and Drug Administration (FDA) communications. Mr. Ceresney stated, "One significant type of key event that we see causing problems with disclosure in your industry is disclosures on your dealings with the FDA. Accuracy of reporting in your dealings with the FDA is critical to getting investors the information they need."

Though the life science industry is not typically where the SEC has historically been active, in the wake of Mr. Ceresney's speech and the AVEO case, life science companies and their executives should be aware that disclosures relating to the regulatory process will be scrutinized by not just private litigants, but also the SEC.

Background

On May 11, 2012, AVEO met with FDA officials to discuss the results of its Tivozanib clinical trial, prior to filing its related New Drug Application ("NDA"). During the meeting, the FDA expressed concern over the survival rates among clinical trial participants and recommended that AVEO "conduct a second adequately powered randomized trial in a population comparable to that in the US."

In an August 2012 press release and Form 10-Q, AVEO disclosed the FDA's concern, but not that the FDA actually recommended AVEO conduct another clinical trial. AVEO did not stop there, however. During an August 2, 2012, investor call, executives were specifically asked what the FDA might be looking for with resect to additional studies or analysis, and company executives responded by declining to "speculate."

Still not disclosing the FDA's concerns, during a January 2013 public offering, AVEO raised $53 million. It wasn't until April 30, 2013, when the FDA released a "pre-meeting summary" in advance of a meeting with an advisory panel of experts to evaluate AVEO's NDA, that the May 2012 recommendation was made public.

The SEC filed a Complaint on March 29, 2016, against AVEO alleging violations of Section 10(b) and 10b-5 and Section 17(a) against AVEO and three former officers; Exchange Act Rule 13a-14 violations against AVEO's CEO Tuan Ha-Ngoc and CFO David Johnston; and 13(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13 violations against AVEO.

Settlement

Without admitting or denying any allegations in the complaint, AVEO has agreed to pay a $4 million penalty. While this settlement is still awaiting court approval, the SEC is continuing the cases against AVEO's former CEO, CFO, and Chief Medical Officer William Slichenmyer.

This case makes apparent that companies should not downplay, spin, or ignore FDA comments or concerns. Pharmaceutical companies and their officers could face liability if they affirmatively misrepresent or omit key facts about their dealings with the FDA, and executives should also take care to verify that all public disclosures accurately reflect the company's communications with the FDA or other regulatory body.